General fund and state equalization revenue report

22 Pages·1994·1.3 MB·English

by  Montana. Legislature. Legislative Finance Committee

S Oenaral fund and
351*724 state equalization
L73afrs revenue report
1984-

CLeLgAisYlTaOtiNveSFCiHscEaNlCAKnalyst Room 105 • StateCapitol
P.O. Box201711
Helena, Montana59620-1711
[phone]
STATE OF MONTANA FAX[phone]
Office of the Legislative Fiscal Analyst
DATE: May 27, 1994
TO: Legislative Finance Committee
FROM: Terry W. Johnson ^V^Q^
Principal Fiscal Analyst
SUBJECT: General Fund and School Equalization Account Revenue Report
INTRODUCTION
The purpose ofthis report is to provide the committee with a status on year-to-date revenue
collections deposited to the general fund and school equalization account (SEA). Revenue
collections recorded on the Statewide Budgeting and Accounting System (SBAS) through
May 25, 1994, as compared to May 31 oflast year are used throughout this report.
The revenueestimatescontained in HouseJointResolution 2 (HJR 2) ofthe November 1993
special session are also referenced. These estimates have been adjusted for legislation
enacted by the special session.
REVENUE DISCUSSION
Total general fund and SEA collections through May 25, 1994, were $734.3 million or 84.2
percent of the fiscal 1994 revenue estimate contained in HJR 2. This compares to $790.1
millionor82.9percentoftotalcollectionsdepositedin these accounts throughMay 31, 1993.
Tables 1 and 2 provide a comparison of collections through May 25 of this year with
collections through May 31 oflast year. Since a numberofpolicy changes occurred in both
years, comparing year-to-date collections with last year can be misleading and should be
viewed cautiously. Examples of policy changes include: 1) implementation of the seven
percent surtax (primarily for fiscal 1993); 2) the acceleration of estimated income taxes in
fiscal 1993; and 3) the implementation ofHouse Bill 671 (Income Tax Reform) withholding
tables on July 1, 1993 (fiscal 1994).

The seven percent surtax and the acceleration ofestimated tax increased revenues for fiscal
1993 only and were not expected to significantly impact fiscal 1994. However, new
withholding tables due to the enactment of HB 671 were expected to increase revenues in
fiscal 1994 and beyond. Suspension of HB 671 by petition in October 1993 is expected to
increase individual income tax refunds during fiscal 1994.
Whilethereare numeroustypesofrevenuedepositedtothegeneral fundandSEA, about78.6
percent of the total revenue base consists of individual income taxes, corporation income
taxes, investmentsearnings, andproperty taxes. Graph 1 showsthe HJR2 revenueestimates
forfiscal 1994 by these majorrevenue groupings. Based oncollection data through May 25,
alloftheaboverevenuecomponentsshouldequalorexceedthe fiscal 1994revenueestimates
contained in HJR 2.
Although many of the smaller revenue General Fund & SEA Revenue Analysis
sources are also on "target", electrical
energy taxes and inheritance taxes may be
below expectations. Even if collections HJR 2 Revenue Estimates For Fiscal 1994
from these two sources are less than
anticipated, total general fund and SEA
Income
revenue collections should exceed fiscal S328.4M 37.6'
1994 HJR 2 revenue estimates.
The pertinent questions at this fime are: 1)
how much will collections exceed the fiscal
1994 revenue estimate; 2) what is causing
stronger revenue growth; and 3) will these
trends continue into the future?
Unfortunately, it is difficult to answerthese SC6o0r.p8oMrat7i.o0n%
questions without more current tax return Natural Resources
information. The following discussion $49.0M 5.6%
explains current staUstical information
available and the implications ofthis data.
Graph
Individual Income Taxes 1
Total individual income tax collections through May 25, 1994, were $357.8 million orS29.4
million higher than the fiscal 1994 revenue estimate contained in HJR 2. While additional
withholding and estimated taxes are to be received by June 30, significant refunds are
expected to be issued before fiscal 1994 is complete.
Based on year-to-date collection data, total individual income taxes for fiscal 1994 should
exceed the HJR 2 revenue estimate. Since calendar 1993 tax returns are currently being
processed, the most recenttax returnstatisticsavailable are forcalendar 1992. The following
discusses our analysis of this information.

Individual income tax return data for calendar 1992 showed total income for full-year
residents increased by 8.39 percent over calendar 1991. The income components with the
greatestincreasewerecapitalgains,rents,royaltiesandpartnerships,andnetbusinessincome.
Net operating losses also fell substantially. Full-yearresident wage and salary income grew
8 percent between calendar 1991 and 1992.
Table 3 shows the predicted income growth rates between calendar 1991 and 1992 as
compared with actual growth rates. Full-year resident tax returns for calendar 1992 were
used to prepare this table.
The predicted growth in wage and
salary income between calendar 1991
and 1992 was very close to the actual
growth. The underestimation in wage
and salary income was only .37
percent, or $19 million. Of the 8
percent in actual wage and salary
growth, approximately 3.3 percent was
due to an increase in the number of
wage earners.
Interest and dividend income was
predicted to fall by 2.55 percent
between calendar 1991 and 1992. The
actual reduction in interest and
dividend income was over 9 percent.
Net business income was predicted to
increase by 7.8 percent between
calendar 1991 and 1992, based on
forecasts by Wharton's Econometrics
for U.S. business income. Actual
growth in Montana's net business
income was almost 15 percent. Less
than a third (4.7 percent) of this
growth was due to an increase in firms
reporting net business income.